By Nancy Leinfuss
NEW YORK, Nov 25 (Reuters) - U.S. corporate bonds ended a six-week rally a tad weaker on Monday as trading slowed ahead of the holiday and issuance tapered off after a heavy week of supply, traders said.
"We're a bit softer in here, but trading has been very quiet," said one trader. "We've seen a bit of issuance activity, but overall, holiday weeks are always very slow."
Spreads, the yield gap between corporate bonds and comparable-maturity Treasuries, widened 0.01 percentage point in very slow trade. In late trading, 10-year Treasuries were down 11/32, yielding 4.192 percent.
Monday's performance was not indicative of the mood in the the market -- corporate bonds this month have enjoyed their best showing of the year compared with Treasuries.
The yield gap between the two narrowed, a sign that investors are more comfortable with corporate debt and favor higher-yielding corporates over Treasuries. For November, returns on corporate bonds have outpaced Treasuries by about 2.2 percent, according to Merrill Lynch.
Even with almost $19 billion billion of supply this past week in investment and junk grade debt, corporate bond spreads still put in a strong performance.
"Spreads continued to tighten in the midst of one of the largest issuance weeks of the year. Voracious buying this month has erased almost half of the entire year's damage," Salomon Smith Barney analysts wrote in a research report.
Corporate bonds on average now yield about 1.95 percentage points more than Treasuries, down from a high of 2.67 percentage points on Oct. 10, according to Merrill Lynch & Co. A seven-week rally in equities and signs that the U.S. recovery is picking up steam have also fueled investor appetite for corporate issues.
The overriding catalyst for tighter spreads has been reduced expectations of military conflict or negative earnings surprises through the end of the year, Salomon said. As a result, corporate spreads should continue to benefit from the bid for riskier assets at the expense of their Treasury counterparts.
Issuers sold a combined $1.3 billion of high grade supply on Monday. However, the pipeline is seen tapering off ahead of Thursday's U.S. Thanksgiving Day holiday, when financial markets will be closed. The debt market will see an abbreviated trading session on Wednesday.
CAMPBELL, SUNTRUST SALES
Campbell Soup Co., the world's largest soup maker, based in Camden, New Jersey, sold $400 million of 5 percent 10-year notes at a spread of 0.88 percentage point over U.S. Treasuries. The A3/A rated offering, initially slated at $300 million, was boosted to meet investor demand.
"Campbell Soup is one of those well-known brand names with a good global footprint, and it doesn't have much debt, so it fits investor needs for quality and diversification," said Jim Merli, global head of fixed-income at Lehman Brothers.
The notes later traded 0.02 percentage point tighter over U.S. Treasuries, in the secondary market, indicating further demand for the issue.
Another $500 million of Aa3/A-plus rated 15-year debt was sold by SunTrust Banks, Inc., the Southeast regional bank. The issue yielded a spread of 1.32 percentage points over U.S. Treasuries. The sale was boosted in size from an initially planned $300 million to meet investor demand.
SunTrust notes also tightened by 0.01 percentage point over Treasuries when freed to trade, traders said.
Companies last week sold about $16.6 billion of investment-grade bonds, $925 million of split-rated bonds, $1.4 billion of junk bonds and $1.1 billion of convertible debt, according to Reuters data.
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GECC PLANS RETAIL BOND SALE
General Electric Capital Corp., one of the world's largest bond issuers, said it plans to sell up to $20 billion of bonds directly to individuals. The finance arm of General Electric Co. joins a growing list of companies selling bonds directly to retail investors.
The InterNotes program lets buy-and-hold investors, typically in their 40s to 60s, buy investment-grade bonds with a variety of interest rates and maturities and without sales commissions, generally with $1,000 minimum investments.
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